Czech Rep. Economic Outlook

November 28, 2017

Economic growth in the third quarter was broad-based: All main expenditure components increased at a robust pace. The solid run is likely to continue into the final quarter of the year, according to leading data. The PMI came in at its highest level in over six years in October, signaling ongoing expansion in the manufacturing sector. On 21 November, police asked parliament to lift prospective Prime Minister Andrej Babis’ immunity, to investigate an alleged case of fraud involving EU subsidies. Babis will seek to form a minority government after nearly all parties in the lower house have refused to join forces with his party amid the allegations.

Czech Republic Economic Growth

It is likely that the country will be subject to further political turmoil, which could last for months, possibly jeopardizing the approval of the 2018 budget and curbing fixed investment. The current prudent fiscal stance is unlikely to change, however. Furthermore, economic growth should continue to be solid in 2018 on the back of strong private consumption. Fixed investment is also expected to contribute, although it might be curbed by political uncertainty. A possible distortion in the relationship with the EU could drag on investment flows. Panelists see GDP growing 3.2% in 2018, up 0.1 percentage points from last month’s projection, and 2.8% in 2019.